International agreements (climate change agreements and other arrangements)

The UNFCCC and its Kyoto Protocol have set a significant precedent as a means of solving a long-term international environmental problem, but are only the first steps towards implementation of an international response strategy to combat climate change. The Kyoto Protocol’s most notable achievements are the stimulation of an array of national policies, the creation of an international carbon market and the establishment of new institutional mechanisms. Its economic impacts on the participating countries are yet to be demonstrated. The CDM, in particular, has created a large project pipeline and mobilized substantial financial resources, but it has faced methodological challenges regarding the determination of baselines and additionality. The protocol has also stimulated the development of emissions trading systems, but a fully global system has not been implemented. The Kyoto Protocol is currently constrained by the modest emission limits and will have a limited effect on atmospheric concentrations. It would be more effective if the first commitment period were to be followed up by measures to achieve deeper reductions and the implementation of policy instruments covering a higher share of global emissions (high agreement, much evidence) [13.3].

Many options are identified in the literature for achieving emission reductions both under and outside the Convention and its Kyoto Protocol, for example: revising the form and stringency of emission targets; expanding the scope of sectoral and sub-national agreements; developing and adopting common policies; enhancing international RD&D technology programmes; implementing development-oriented actions, and expanding financing instruments (high agreement, much evidence). Integrating diverse elements such as international R&D cooperation and cap-and-trade programmes within an agreement is possible, but comparing the efforts made by different countries would be complex and resource-intensive (medium agreement, medium evidence) [13.3].

There is a broad consensus in the literature that a successful agreement will have to be environmentally effective, cost-effective, incorporate distributional considerations and equity, and be institutionally feasible (high agreement, much evidence) [13.3].

A great deal of new literature is available on potential structures for and the substance of future international agreements. As has been noted in previous IPCC reports, because climate change is a globally common problem, any approach that does not include a larger share of global emissions will be more costly or less environmentally effective. (high agreement, much evidence) (See Chapter 3) [13.3].

Most proposals for future agreements in the literature include a discussion of goals, specific actions, timetables, participation, institutional arrangements, reporting and compliance provisions. Other elements address incentives, non-participation and non-compliance penalties (high agreement, much evidence) [13.3].

Goals

The specification of clear goals is an important element of any climate agreement. They can both provide a common vision about the near-term direction and offer longer-term certainty, which is called for by business. Goal-setting also helps structure commitments and institutions, provides an incentive to stimulate action and helps establish criteria against which to measure the success in implementing measures (high agreement, much evidence) [13.3].

The choice of the long-term ambition significantly influences the necessary short-term action and therefore the design of the international regime. Abatement costs depend on the goal, vary with region and depend on the allocation of emission allowances among regions and the level of participation (high agreement, much evidence) [13.3].

Options for the design of international regimes can incorporate goals for the short, medium and long term. One option is to set a goal for long-term GHG concentrations or a temperature stabilization goal. Such a goal might be based on physical impacts to be avoided or conceptually on the basis of the monetary and non-monetary damages to be avoided. An alternative to agreeing on specific CO2 concentration or temperature levels is an agreement on specific long-term actions such as a technology R&D and diffusion target – for example, ‘eliminating carbon emissions from the energy sector by 2060’. An advantage of such a goal is that it might be linked to specific actions (high agreement, much evidence) [13.3].

Another option would be to adopt a ‘hedging strategy’, defined as a shorter-term goal on global emissions, from which it is still possible to reach a range of desirable long-term goals. Once the short-term goal is reached, decisions on next steps can be made in light of new knowledge and decreased levels of uncertainty (medium agreement, medium evidence) [13.3].

Participation

Participation of states in international agreements can vary from very modest to extensive. Actions to be taken by participating countries can be differentiated both in terms of when such action is undertaken, who takes the action and what the action will be. States participating in the same ‘tier’ would have the same (or broadly similar) types of commitments. Decisions on how to allocate states to tiers can be based on formalized quantitative or qualitative criteria, or be ‘ad hoc’. Under the principle of sovereignty, states may choose the tier into which they are grouped (high agreement, much evidence) [13.3].

An agreement can have static participation or may change over time. In the latter case, states can ‘graduate’ from one tier of commitments to another. Graduation can be linked to passing of quantitative thresholds for certain parameters (or combinations of parameters) that have been predefined in the agreement, such as emissions, cumulative emissions, GDP per capita, relative contribution to temperature increase or other measures of development, such as the human development index (HDI) (high agreement, much evidence) [13.3].

Some argue that an international agreement needs to include only the major emitters to be effective, since the largest 15 countries (including the EU-25 as one) make up 80% of global GHG emissions. Others assert that those with historical responsibility must act first. Still another view holds that technology development is the critical factor for a global solution to climate change, and thus agreements must specifically target technology development in Annex I countries – which in turn could offset some or all emissions leakage in Non-Annex I countries. Others suggest that a climate regime is not exclusively about mitigation, but also encompasses adaptation – and that a far wider array of countries is vulnerable to climate change and must be included in any agreement (high agreement, much evidence) [13.3].

Regime stringency: linking goals, participation and timing

Under most equity interpretations, developed countries as a group would need to reduce their emissions significantly by 2020 (10–40% below 1990 levels) and to still lower levels by 2050 (40–95% below 1990 levels) for low to medium stabilization levels (450–550ppm CO2-eq) (see also Chapter 3). Under most of the regime designs considered for such stabilization levels, developing-country emissions need to deviate below their projected baseline emissions within the next few decades (high agreement, much evidence). For most countries, the choice of the long-term ambition level will be more important than the design of the emission-reduction regime [13.3].

The total global costs are highly dependent on the baseline scenario, marginal abatement cost estimates, the assumed concentration stabilization level (see also Chapters 3 and 11) and the level (size of the coalition) and degree of participation (how and when allowances are allocated). If, for example some major emitting regions do not participate in the reductions immediately, the global costs of the participating regions will be higher if the goal is maintained (see also Chapter 3). Regional abatement costs are dependent on the allocation of emission allowances to regions, particularly the timing. However, the assumed stabilization level and baseline scenario are more important in determining regional costs [11.4; 13.3].

Commitments, timetables and actions

There is a significant body of new literature that identifies and evaluates a diverse set of options for commitments that could be taken by different groups. The most frequently evaluated type of commitment is the binding absolute emission reduction cap as included in the Kyoto Protocol for Annex I countries. The broad conclusion from the literature is that such regimes provide certainty about future emission levels of the participating countries (assuming caps are met). Many authors propose that caps be reached using a variety of ‘flexibility’ approaches, incorporating multiple GHGs and sectors as well as multiple countries through emission trading and/or project-based mechanisms (high agreement, much evidence) [13.3].

While a variety of authors propose that absolute caps be applied to all countries in the future, many have raised concerns that the rigidity of such an approach may unreasonably restrict economic growth. While no consensus approach has emerged, the literature provides multiple alternatives to address this problem, including ‘dynamic targets’ (where the obligation evolves over time), and limits on prices (capping the costs of compliance at a given level – which while limiting costs, would also lead to exceeding the environmental target). These options aim at maintaining the advantages of international emissions trading while providing more flexibility in compliance (high agreement, much evidence). However, there is a trade-off between costs and certainty in achieving an emissions level. [13.3]

Market mechanisms

International market-based approaches can offer a cost-effective means of addressing climate change if they incorporate a broad coverage of countries and sectors. So far, only a few domestic emissions-trading systems are in place, the EU ETS being by far the largest effort to establish such a scheme, with over 11,500 plants allocated and authorized to buy and sell allowances (high agreement, high evidence) [13.2].

Although the Clean Development Mechanism is developing rapidly, the total financial flows for technology transfer have so far been limited. Governments, multilateral organizations and private firms have established nearly 6 billion US$ in carbon funds for carbon-reduction projects, mainly through the CDM. Financial flows to developing countries through CDM projects are reaching levels in the order of several billion US$/yr. This is higher than the flows through the Global Environment Facility (GEF), comparable to the energy-oriented development assistance flows, but at least an order of magnitude lower than all foreign direct investment (FDI) flows (high agreement, much evidence) [13.3].

Many have asserted that a key element of a successful climate change agreement will be its ability to stimulate the development and transfer of technology – without which it may be difficult to achieve emission reductions on a significant scale. Transfer of technology to developing countries depends mainly on investments. Creating enabling conditions for investments and technology uptake and international technology agreements are important. One mechanism for technology transfer is to establish innovative ways of mobilizing investments to cover the incremental cost of mitigating and adapting to climate change. International technology agreements could strengthen the knowledge infrastructure (high agreement, much evidence) [13.3].

A number of researchers have suggested that sectoral approaches may provide an appropriate framework for post-Kyoto agreements. Under such a system, specified targets could be set, starting with particular sectors or industries that are particularly important, politically easier to address, globally homogeneous or relatively insulated from competition with other sectors. Sectoral agreement may provide an additional degree of policy flexibility and make comparing efforts within a sector between countries easier, but may be less cost-effective, since trading within a single sector will be inherently more costly than trading across all sectors (high agreement, much evidence) [13.3].

Coordination/harmonization of policies

Coordinated policies and measures could be an alternative to or complement internationally agreed targets for emission reductions. A number of policies have been discussed in the literature that would achieve this goal, including taxes (such as carbon or energy taxes); trade coordination/liberalization; R&D; sectoral policies and policies that modify foreign direct investment. Under one proposal, all participating nations – industrialized and developing alike – would tax their domestic carbon usage at a common rate, thereby achieving cost-effectiveness. Others note that while an equal carbon price across countries is economically efficient, it may not be politically feasible in the context of existing tax distortions (high agreement, much evidence) [13.3].

Non-climate policies and links to sustainable development

There is considerable interaction between policies and measures taken at the national and sub-national level with actions taken by the private sector and between climate change mitigation and adaptation policies and policies in other areas. There are a number of non-climate national policies that can have an important influence on GHG emissions (see Chapter 12) (high agreement, much evidence). New research on future international agreements could focus on understanding the inter-linkages between climate policies, non-climate policies and sustainable development, and how to accelerate the adoption of existing technology and policy tools [13.3].

An overview of how various approaches to international climate change agreements, as discussed above, perform against the criteria, given in the introduction, is presented in Table TS.21. Future international agreements would have stronger support if they meet these criteria (high agreement, much evidence) [13.3].

Requires many separate decisions. Depends on research capacity and long-term funding

Development-oriented actions

Depends on national policies and design to create synergies

Depends on the extent of synergies with other development objectives

Depends on distributional effects of development policies

Depends on priority given to sustainable development in national policies and goals of national institutions

Financial mechanisms

Depends on funding

Depends on country and project type

Depends on project and country selection criteria

Depends on national institutions

Capacity building

Varies over time and depends on critical mass

Depends on programme design

Depends on selection of recipient group

Depends on country and institutional frameworks

a) The table examines each approach based on its capacity to meet its internal goals – not in relation to achieving a global environmental goal. If such targets are to be achieved, a combination of instruments needs to be adopted. Not all approaches have equivalent evaluation in the literature; evidence for individual elements of the matrix varies.